Hedge
Real-time options trading powered by pool-based liquidity on MegaETH. Hedge enables sophisticated risk management and speculation through on-chain options with instant execution and transparent pricing.
At a Glance
- Trade options on major token pairs with sub-10ms execution
- Pool-based liquidity model with USDm-only architecture
- 8 strategy types: calls, puts, straddles, strangles, and spreads
- Options positions as tradeable ERC721 NFTs
- Hedge liquidity positions, protect holdings, or speculate on volatility
How It Works
Hedge combines pool-based liquidity with on-chain options:
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Liquidity Providers: Deposit USDm into CoverPool to earn 70% of protocol profits from option premiums.
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Options Traders: Purchase options by paying premiums in USDm. Liquidity is locked from OperationalTreasury to back the option.
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Exercise & Settlement: When options are exercised, profits are paid from Treasury. CoverPool provides backup liquidity if needed.
All powered by MegaETH's sub-10ms execution for instant settlement and real-time position management.
Why Use Hedge?
Protect Liquidity Positions
Liquidity providers face impermanent loss risk. Hedge enables protection:
Scenario: Provide liquidity to ETH/USDm pool
Risk: ETH price drops, causing IL
Solution: Buy ETH put options
- If ETH drops: Put gains offset IL
- If ETH rises: Small premium paid, but LP fees continue
- Net: Downside protected, upside preserved
Generate Leveraged Exposure
Options provide capital-efficient market exposure:
Scenario: Bullish on ETH
Strategy: Buy ETH call options
- Control 10 ETH with $500 premium (vs $20,000 to buy)
- Maximum loss: $500 (premium paid)
- Profit potential: Unlimited upside
- Capital efficiency: 97.5% less capital required
Speculate on Volatility
Trade options for volatility exposure:
Scenario: Expect ETH volatility spike
Strategy: Buy straddle (call + put at same strike)
- If large move either direction: Profit from winning leg
- If price stays flat: Lose premiums
- Capital efficient volatility exposure
Core Features
Options Trading
Available Strategies:
- Calls: Right to buy token at strike price
- Puts: Right to sell token at strike price
- Straddles: Call + Put at same strike (volatility play)
- Strangles: Call + Put at different strikes (wide volatility play)
- Spreads: Multiple options to cap risk and reward
How Trading Works:
- Select strategy (e.g., ETH Call)
- Input parameters (amount, strike price, duration)
- System calculates premium via strategy contract
- Approve USDm spending
- Purchase option
- Receive option as ERC721 NFT
- Exercise before expiration
Available Strike Prices:
- ATM (current market price)
- OTM Call: +10%, +20%, +30% above market
- OTM Put: -10%, -20%, -30% below market
OTM options can only be exercised if the strike price is reached.
Available durations: 7 days to 90 days.
Pool-Based Liquidity
USDm-Only Architecture:
MegaFi uses a single-asset liquidity model:
- Liquidity providers deposit USDm
- Options traders pay premiums in USDm
- All settlements happen in USDm
- No token conversion, no impermanent loss for options
OperationalTreasury:
- Holds USDm reserves for option backing
- Locks liquidity when options are purchased
- Pays profits when options are exercised
CoverPool:
- LP-provided USDm reserve pool
- Earns 70% of net protocol profits
- Provides backup liquidity for large payouts
- Weekly profit distribution via 7-day epochs
NFT-Based Positions
Options are ERC721 tokens:
Benefits:
- Transferable: Sell option before expiry
- Composable: Use as collateral in other protocols
- Transparent: All data on-chain
- Tracked: Single position ID for entire lifecycle
Position Ownership:
Option Purchased → NFT Minted → Transfer/Hold/Exercise → NFT Burns
Each NFT contains option parameters (strike, expiry, size, strategy).
Exercise Mechanics
Exercise Timing: Options can be exercised before expiration when in-the-money.
Manual Exercise: Exercise anytime before expiry if profitable.
Option Lifecycle:
Created → Active Period → Expiry
└─ Can exercise here (if ITM)
Settlement:
- Calculate profit based on current price vs strike
- Transfer profit in USDm
- Unlock liquidity from Treasury
- Burn NFT
Option Mechanics
Buying Options
- Navigate to Hedge
- Select strategy type (Call, Put, etc.)
- Choose underlying asset (ETH, BTC)
- Enter amount (e.g., 1 ETH)
- Select strike price:
- ATM (current market price)
- OTM Call: +10%, +20%, or +30% above market
- OTM Put: -10%, -20%, or -30% below market
- Select duration (e.g., 7 days)
- Review premium calculation
- Approve USDm spending
- Confirm purchase
- Receive option NFT
Premium paid upfront. Maximum loss = premium paid.
Selling Options
Advanced users can sell options to earn premiums:
- Select strategy and parameters
- Deposit required collateral
- Receive premium immediately
- Collateral locked until expiry or buyback
Collateral Requirements:
- Covered Calls: Must own underlying tokens
- Cash-Secured Puts: Must hold USDm equal to strike value
Risk: Obligation to deliver if exercised.
Exercising Options
Exercise Process:
- Option is in-the-money (price above strike for calls, below strike for puts)
- Click "Exercise" on the option
- System calculates profit
- USDm profit transferred to wallet
- NFT burns
OTM Options: Out-of-the-money options can only be exercised if the strike price is reached.
Pricing & Premiums
Options priced using Black-Scholes model:
Premium Inputs
Underlying Price: Real-time from Chainlink oracles.
Strike Price: Exercise price selected by trader.
Time to Expiration: Duration selected (7-90 days).
Implied Volatility: Market expectation of future volatility.
Risk-Free Rate: DeFi lending rates (minimal impact).
Transparent, deterministic pricing with no intermediaries.
Hedging Strategies
Protective Put
Buy put to protect holdings:
Position: Hold 10 ETH at $2,000
Hedge: Buy 10 ETH puts at $1,800 (30 days)
Cost: $50 premium per ETH = $500 total
Outcome:
- ETH drops to $1,500: Put value = $3,000, loss offset
- ETH rises to $2,500: Put expires, participate in upside
- Max downside: $200/ETH + $50 premium = $250/ETH
Covered Call
Sell call against holdings for income:
Position: Hold 10 ETH at $2,000
Strategy: Sell 10 ETH calls at $2,200 (30 days)
Income: $80 premium per ETH = $800 total
Outcome:
- ETH stays below $2,200: Keep ETH + $800 premium
- ETH rises above $2,200: Sell ETH at $2,200 + keep $800
- Additional yield: $800 / $20,000 = 4% monthly = 48% APY
Collar
Combine protective put and covered call:
Position: Hold 10 ETH at $2,000
Buy: 10 ETH puts at $1,800 ($50 premium)
Sell: 10 ETH calls at $2,200 ($80 premium)
Net Credit: $30 per ETH = $300 total
Outcome:
- Downside capped at $1,800
- Upside capped at $2,200
- Net cost: Negative (received $300)
- Protected position with income
LP Hedging
Protect liquidity positions:
LP Position: $20k in ETH/USDm pool
Risk: IL if ETH moves significantly
Hedge: Buy straddle (call + put at $2,000)
Cost: $100 per ETH = $500 for 5 ETH worth
Outcome:
- Large move either direction: Option gains offset IL
- Small moves: LP fees > option premium
- Protected LP position with capped cost
Risk Management
CoverPool Backup:
- Provides additional USDm if Treasury insufficient
- Earns from protocol profits
- Acts as safety net for large payouts
Hedge on MegaETH
Sub-10ms Exercise
Exercise and settle options instantly:
ITM Option at Expiration:
Submit exercise: 0ms
Verify position: 2ms
Calculate payout: 1ms
Transfer USDm: 5ms
Total: 8ms
Traditional: 15-30 seconds
Instant Premium Calculation
On-chain pricing without delay:
Parameter input → Chainlink price query → Black-Scholes calculation → Premium display
Total latency: < 50ms
Liquidity Provider Benefits
Earn from Premiums
LPs earn 70% of net protocol profits:
Weekly Profit Distribution:
- 70% → CoverPool (for LPs)
- 20% → Treasury (for reserves)
- 10% → Protocol (for development)
Epoch System
7-day profit distribution cycles:
Day 0-5: Entry/Exit window (can deposit/withdraw)
Day 5-7: Locked period (no changes)
Day 7: fixProfit() called → Profits distributed
No Impermanent Loss
USDm-only model eliminates IL:
Deposit: 10,000 USDm
Withdrawal: Principal + Profits (all in USDm)
No token conversion, no price risk
Composability
With DEX
Hedge LP positions automatically:
Strategy:
1. Provide liquidity to ETH/USDm
2. Buy protective puts from Hedge
3. LP fees help offset put premium
4. Downside protected LP position
With Auto-Pools
Combine automated liquidity management with hedging:
Setup:
1. Deploy aggressive strategy mode (narrow zones)
2. Hedge with options to cap IL
3. Earn high fees with protected downside
FAQ
What options strategies are available?
8 strategies: Call, Put, Straddle, Strangle, Call Spread, Put Spread, and 2 inverse spreads.
Are options physically or cash-settled?
Cash-settled in USDm. You receive profit in USDm, not the underlying token.
Can I close options before expiration?
Yes. Options are ERC721 NFTs and can be transferred or sold on secondary markets.
When can I exercise options?
Before expiration when the option is in-the-money. OTM options can only be exercised if the strike price is reached.
What's the minimum trade size?
Varies by strategy. Typically 0.1 ETH or equivalent.
Are contracts audited?
Built on audited smart contracts. Additional security audits planned before mainnet launch.
How are premiums calculated?
Black-Scholes model using Chainlink price feeds and configurable volatility parameters.
Next Steps
Explore Hedge capabilities:
- Options Trading - Trade calls and puts
- Hedging Strategies - Protect your positions
- Risk Management - Understand risk controls
Manage risk. Maximize returns.